Although Purchase Order Finance is usually considered a method of financing imports, it is actually just as likely to be used to finance domestic transactions. It is a very potent financial tool for small manufacturers as well as distributors who are growing their business rapidly.
Purchase Order Finance answers the question…“What do I do if I get an order that is so large I don’t have the money to manufacture it.?” Purchase Order Finance often provides a ready solution.
How Purchase Order Finance Works
To utilize the ready financing provided through Purchase Order Finance, you simply must…
- Firm Order: Have a firm order for goods from a very creditworthy customer.
- Manufacturing History: Have the proven ability (history) of being able to manufacture the goods or be able to purchase those goods from a reliable manufacturer.
- Meet Specifications: Be able to meet the manufacturing specifications and delivery terms defined in the purchase order.
- Take Out Financing: Have financing or a payment arrangement in place to “take out” the purchase order finance company once the goods are delivered to the customer. (This is usually arranged through a factor)
Typically, a Purchase Order Finance Company will post a letter of credit for the manufacture and delivery of the goods to meet the purchase order. It oversees the manufacture and shipping of the goods, making sure they meet specifications. Once the goods are delivered, the customer is then invoiced, the invoice is factored, and the factor pays off the purchase order finance company out of the initial invoice advance.
Financing for Offshore Manufacturing
Purchase Order Finance is commonly utilized by manufacturers and distributors who manufacture offshore. It is one of several very powerful export / import financial tools that allow small business operators who contract manufacture overseas to compete for very large orders from major retailers…orders they typically would not be able to compete for without this method of finance.
Find Out More
At Phoenix Financial Company, we have broad expertise in the various financing areas of export trade and Purchase Order Finance. Want to find out more? Contact us for a no-obligation consultation or simply complete our online application. You may be just days away from the alternative financing your business needs and deserves.